$20 trillion call for action on climate change

October 20, 2011

By SAM RILEY

A joint statement from a group of 285 investors representing more than $20 trillion has called for a binding international legal framework that will provide the long-term certainty needed to encourage the large-scale private investment necessary to tackle climate change.

In the investors’ annual statement on climate change they say they are ready and able to invest in green technology and infrastructure but need clear policy direction at both the domestic and international level.

“While domestic legislation is the critical determinant of the level of capital flows into areas such as energy and energy efficiency, a rules-based international climate change regime is critically important to send appropriate signals to global capital markets,” the statement, by some of the world’s biggest investors, says.

The annual statement, whose backers include three investor climate change organisations and the UN-backed Principles for Responsible Investment (PRI), says urgent policy action is needed to encourage the large amounts of private sector investment necessary for the world economy to transition to a low-carbon future.

Current levels of investment in green technology are substantially lower than the $500 billion a year deemed necessary by the International Energy Agency (IEA) to hold the increase of global average temperatures below 2 degrees Celsius, the group of investors note in their 2011 Global Statement on Climate Change.

“Private investment will only flow at the scale and pace necessary if it is supported by clear, credible and long-term policy frameworks that incentivise investments in low-carbon technologies rather than continuing to favour carbon-intensive energy sources,” the signatories say.

The statement represents the most significant push yet – both in terms of number of investors and assets under management – for action on climate change.

Investor support for climate action has more than doubled since November 2008, when 150 investors with $9 trillion in assets under management issued the first statement urging government leaders to act on climate change.

Accompanying the statement is a report commissioned by the US-based Investor Network on Climate Risk (INCR), the European Institutional Investors Group on Climate Change (IIGCC) and the Investor Group on Climate Change (IGCC) in Australia and New Zealand, alongside the United Nations Environment Programme Finance Initiative (UNEP FI).

The report identifies the importance of what it calls “investment-grade” policy, which will enable institutional investors to allocate capital on the scale that is required tackle climate change.

The authors of the report identify uncertainty over the long-term direction of government policy and retroactive policy changes as concerns that are “significantly damaging” investor confidence.

Dr Wolfgang Engshuber (pictured), chair of the PRI advisory council, says that climate change will not only present a range of potential risks for investors but also opportunities.

“Climate change will transform economies throughout the world, creating new opportunities for investors,” Engshuber says.

“However, these will gain traction only if governments play their part in laying down well-designed and effective climate change policies. Without such a supportive regulatory environment, we will not see the level of investment that is needed to transform the world’s energy supplies and transport systems.”

In their statement, the investors advocate a raft of policy initiatives they want governments to act on.

These include providing financial incentives to shift the risk reward balance in favour of low-carbon assets; requiring corporations to disclose material climate change-related risks and clear short, medium and long-term targets for the reduction of greenhouse gas emissions.

The investors want these targets to be back by “comprehensive, enforceable legal mechanisms and timelines”.

Internationally, investors also want a robust carbon market and for the international community to continue working towards a binding international treaty that includes all major carbon emitters.

In addition, the investors also support the development of green fund and similar-type funding methods that could aid the push to scale up climate change investment to developing countries.

The funds also want the acceleration of efforts to reduce emissions from deforestation and forest degradation through cooperative investment vehicles such as REDD (Reduced Emissions from Deforestation and Degradation).

The REDD program aims to realise the inherent commercial value of forests as carbon sinks, with investors paying land owners to preserve the forests.